Trade in financial services: GATS, EPAs and complementary policies

Briefing papers
March 2007
Dirk Willem te Velde and Massimiliano Calì

Botswana has not committed the financial services sector in GATS
(General Agreement of Trade in Services), despite the existence of nondiscriminatory legislation and an already important presence of foreign banks. Banks in Botswana are amongst the most profitable in the world with a 40% average return on assets. Some large banks have a profit ratio as high as 100%. This suggests that more competition may well be needed and commitments in both GATS and possibly EPAs (Economic Partnership Agreements with the EU) help to signal this. It is also possible that high profits are a reflection of limited competitive
pressures due to the relatively high entry costs in small markets, as banks emphasise. Policy should then focus on
lowering the fixed costs of entry. Extending GATS commitments to financial services would need to coincide with a good regulatory framework. And this differs between insurance and banking.